Telkom’s share price rallies on results guidance

Key takeaways:

1. Telkom SA SOC Limited expects to report significantly improved financial results for the year ended 31 March 2024 (FY2024)
2. Basic earnings per share (BEPS) and headline earnings per share (HEPS) are projected to increase by over 20% compared to FY2023.
3. Revenues from next-generation services grew by approximately 7%, now accounting for nearly 80% of the total group revenue.
4. Total depreciation and amortization expenses decreased by 23% from R7,145 million, and write-offs for property, plant, and equipment were significantly reduced to approximately R80 million from R13,508 million in the previous year. This contributed positively to the earnings growth.
5. The financial performance was partially offset by increased net finance charges and fair value movements, which rose by approximately 47% from R1,485 million, largely due to higher lending rates during the year.

Financial Performance Highlights

Telkom SA SOC Limited anticipates reporting improved financial results for the year ended 31 March 2024 (FY2024), driven by strong operational performance and cost-optimization initiatives amidst challenging economic conditions. The company's next-generation technologies saw continued demand, contributing significantly to the revenue increase. Revenue from next-generation services grew by approximately 7%, now constituting nearly 80% of total group revenue. Reported EBITDA grew by about 18%, while normalized EBITDA aligned with guidance, growing by roughly 5%.

Earnings Growth and Projections

Telkom expects a substantial increase in both basic earnings per share (BEPS) and headline earnings per share (HEPS) for FY2024. BEPS is anticipated to rise by more than 20%, reaching between 281.1 and 486.1 cents per share, compared to a reported loss of 2,058.9 cents in FY2023. Normalized BEPS is projected to rise by 440% to 450%, landing between 383.5 and 390.6 cents per share. Similarly, HEPS is expected to rise dramatically by 1,155% to 1,165%, with normalized HEPS increasing by 195% to 205%. This significant improvement in earnings is partly due to lower depreciation and write-offs compared to the previous year, although higher net finance charges and foreign exchange movements partially offset these gains.

Impact of Depreciation and Write-offs

In FY2024, Telkom experienced a 23% reduction in total depreciation and amortization expenses for property, plant, equipment, and intangible assets, decreasing to approximately R7,145 million. Write-offs were significantly reduced to about R80 million, a considerable drop from the R13,508 million write-offs and impairments recorded in FY2023. However, the company faced higher net finance charges and fair value movements, which increased by 47% due to elevated lending rates during the year. The prior year's HEPS was restated due to an incorrect tax adjustment, leading to an overstatement of 9.7 cents per share, which has been rectified in the current reporting. These financial adjustments and improvements underscore Telkom's robust performance and strategic financial management.